We want to show you how to use forecasting to test your decisions before you make them. We want to help you see tomorrow’s results today.
We want to break the mold of being a traditional CPA firm. We value our long history of personal service and hold fast to the values that were passed on to us from previous generations. However, we will not continue on the path of traditional CPA firms that only provide compliance services. We are looking ahead to guide our clients forward through consulting services. These services help you make decisions that affect your future and set you on a course for success.
How Do I Forecast?
A forecast begins with good data. We often see clients try to make decisions blindly because they simply don’t have the accounting information they need. If they do have the information, it is most often not provided in a useful format or in a timely manner. The first rule in forecasting is to establish a foundation of well-formatted, timely data. For example, forecasting your pretax profit will be a lot easier if you know how much your sales, labor, and operating expenses currently are. Using those three numbers, the business owner can make better decisions about how many people to hire, what kind of sales to pursue, and whether to move into a larger office space.
Once you have good data, then you can focus on where you need your business to grow. So often business owners simply look at increasing sales. However, some sales are better than others. Sometimes more sales can kill your business. What if you could double your sales today but would not get paid for it for 180 days? That’s a long time to tie up the cash you need for daily operations.
On the other hand, labor is often the most effective and fruitful area to manage. Labor is where your customers are served, and where raw materials are turned into goods. Labor is the engine of your business. Keep your engine running strong, and your business will run longer.
We recommend that companies forecast the cost of their labor when they hire. This can be done with a simple spreadsheet that will show how an increase in labor cost will affect pretax profit. Remember that very few new hires are productive right away. Be realistic about that promising new MBA graduate. With a realistic forecast, you will be able to see how long it will take to realize those benefits to your bottom line.
How Do I Change Course?
Using forecasting allows you to set timelines and expectations for your company and your team. This will give everyone a bearing so that they can all be going in the same direction.
Most of the time, people will respond positively over time to the truth and work hard to achieve success. Sometimes those benefits are never realized and unfortunately something must be done. There are times when you will just need to show someone a different opportunity at another company. Using forecasting will help you have an honest conversation with your team about where they need to be going.
We hope you learned about forecasting and how to use it to get higher performance from your team. Our team is available to discuss these and other tools that we can provide to as a business owner.